GDP Report and Employment Sitrep Are, Unfortunately, Consistent

Dave SchulerMay 2, 2014

I was originally going to title this post “Good News”. Then I read the article and revised my opinion:

(Reuters) – U.S. job growth increased at its fastest pace in more than two years in April and the unemployment rate dived to a 5-1/2 year low of 6.3 percent, suggesting a sharp rebound in economic activity early in the second quarter.

Nonfarm payrolls surged 288,000 last month, the Labor Department said on Friday. That was the largest gain since January 2012 and beat Wall Street’s expectations for only a 210,000 increase.

but

The unemployment rate tumbled 0.4 percentage point, touching its lowest level since September 2008. The Labor Department attributed the decline to a drop in the number of unemployed people reentering the labor market as well as a fall in new entrants into the labor force.

The emphasis is mine. Don’t get me wrong. I rejoice in the 288,000 added to payrolls. If we kept that up every single month, those who’s who’ve been unemployed for so long could come back to work in just three or four years. If we kept that up every single month.

But the unemployment rate dropping because people aren’t even bothering to look isn’t good news.

When I read the article’s headline I wondered how a sharp April increase could be reconciled with the GDP figures we saw earlier in the week and now I know. They’re completely consistent and they’re not particularly encouraging. Better than nothing? Yes. But not nearly good enough.

Well, the BLS jobs number is out. I suspect if past is prologue Dave will have a post on it.

It would be unfair to call any report citing a 288K jobs increase as “poor.” However, for perspective. Its at odds with the Household Survey. (poor) Monthly and year-on-year income is flat or short of expectation. And the participation rate is at an embarrassing low level, making the standard stated unemployment rate a sham. To be fair, U6 appears to have ticked a tad lower.

It would be interesting to know how to really think about the decline in the participation rate. That is, quantitatively. I wonder if research work is underway.

The rationalizers want to cite demographically driven retirement. I think that’s largely a crock given all the articles on people extending their retirement age and their low levels of retirement savings. Then there is the government paying people to sit on their ass factor. OK, more appropriately, “should I work or take the govt check tradeoff. And then the just flat damned discouraged. Apportioning that, even crudely, seems an important piece of information as one thinks about public policy.

It’s an example of the inadequacy of hitting singles as a strategy whether in diplomacy or economic policy. For the economy really to recover we need some months when 400,000 or more jobs are added.

I would be remiss in not recalling that there is such a thing as a business cycle and we’re right around the point where a downturn is more likely than not. It might hold off for a year or so. The NBER might announce that we entered a recession at the beginning of the year as early as September. They’re probably more likely to save the good news until after the midterms.

I can only tell you what I think about the LFPR, Guarneri. I think the demographic argument is absurd and that attributing it to more people seeking higher education a) defies the actual data and b) even if true is probably reverse causality.

I don’t think that it’s due to people wanting to be on the dole, either. I think a very tight labor market causes people to do cost-benefit analysis.

As opinionated as I can be, one thing I assiduously stay away from is predicting recessions (You know what the definition of an economist is? Someone who had predicted 7 of the last 3 recessions.)

I can only gage, as I have for 20-some years, by the pot of data we all see plus…………..how the portfolio is doing. The latter has been a pretty good indicator over time. Our, at least now, says slog-slog-slog (1-2%) vs out and out downturn. Perhaps because the engines never got turned on. This goes to the 400,000 job citation. Ain’t gonna happen IMHO.

As for labor participation. I’m not sure how to fully differentiate waiting for the dole vs cost/benefit. I just know there are a lot out there. I, ahem, have relatives practicing the art. The people I really care about are those who desire to work but can’t in the current environment. In some ways its like a chemical reaction that requires a catalyst to get over the initiation energy hump. “Frictions” preclude jobseekers from obtaining or moving for work, or being fully employed. It would surprise no one that I don’t think this president and all those who agree with his implicit or explicit policies are doing anything to resolve this, and probably are a retardant.

BTW – if anyone hasn’t seen it, go to zerohedge for a breakdown of the jobs by sector. On balance lower paying. It would be useful to know the composition of category #1 – temps, bus services etc. I suspect temps is overrepresented.

The public equity markets are currently absurd, and totally detached, but we know why. PE market valuations have increased as well as investors and lenders have engaged in yield chase. The debt is just flowing through to price.

Just in my own immediate family the job environment seems poor. My son is looking for a job. My godson was let go from his job last month and is still unemployed. And, a cousin in FL was also dismissed from his job — at a time when he thought he was going to be promoted — and can’t find anything but temporary work.

On the surface the government numbers might look encouraging. However, when you dig into the personal circumstances of people around you, it’s an entirely different story.

I’m sorry to hear that, Jan. I have eight nieces and nephews. Of them five have fairly decent jobs, two have spotty part-time work, and one was working an internship that just ended and is looking.

One of the issues, as I’ve mentioned before both here and elsewhere, is that there’s tremendous variation in the jobs market both geographically and demographically. I think the prospects for young people are distressingly shaky—youth unemployment is about 15% but that varies from 2% in some parts of the country to 30% in others. The pay for jobs available is another and equally depressing story.